There is a persistent fear that there will be a high level of deflation. Many economists warn that it may be worse for the economy than if there is high inflation. Suppose that Herb is in debt and has to pay a 5.25% nominal interest rate. He expected inflation to be 1.50%. Instead, inflation is −2.00% (deflation). Multiple Choice Question... Because the economy is experiencing deflation of −2.00%instead of inflation of 1.50%, Herb's real interest rate, compared to what he expected to pay, has A) decreased, so Herb feels poorer. B) increased, so Herb feels richer. C) decreased, so Herb feels richer. D) increased, so Herb feels poorer

There is a persistent fear that there will be a high level of deflation. Many economists warn that it may be worse for the economy than if there is high inflation. Suppose that Herb is in debt and has to pay a 5.25% nominal interest rate. He expected inflation to be 1.50%. Instead, inflation is −2.00% (deflation). Multiple Choice Question... Because the economy is experiencing deflation of −2.00%instead of inflation of 1.50%, Herb's real interest rate, compared to what he expected to pay, has A) decreased, so Herb feels poorer. B) increased, so Herb feels richer. C) decreased, so Herb feels richer. D) increased, so Herb feels poorer

Economics:

10th Edition

ISBN:9781285859460

Author:BOYES, William

Publisher:BOYES, William

Chapter7: Unemployment And Inflation

Section: Chapter Questions

Problem 9E

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